1921-28 - The New Economic Policy [NEP]

In the crucial Tenth Congress of the Bolshevik Party that took place in Moscow during the second week of March 1921 Vladimir Lenin introduced a program of sweeping economic reforms that became known as the New Economic Policy (NEP). In his address to the party he did not hesitate to draw a sharp line between the policies of the first three postrevolutionary years and the future of the Soviet Union, stating that: "There is no doubt that in a country where the overwhelming majority of the population consists of small agricultural producers, a socialist revolution can be carried out only through the implementation of a whole series of special transitional measures which would be superfluous in highly developed capitalist countries where wage-workers in industry and agriculture make up the vast majority. . . . We know that so long as there is no revolution in other countries, only agreement with the peasantry can save the socialist revolution in Russia...."

The turn from Lenin's preface to the introduction of NEP targeted those on the Left who remained convinced that war communism was the only ideologically orthodox, albeit harsh and painful, solution to Russia's underdevelopment. Among them, Evgenii Preobrazhensky championed the cause of a continuing aggressive policy against the independent peasants in favor of the interests of the industrial proletariat.

By the 1920s, the Bolsheviks were responding to many of the same pressures - the need rapidly to industrialize, to modernize agriculture, to build defense capability - that had motivated Nicholas II's regime. These aims were now articulated very differently, but the objective exigencies of modernization made themselves felt nevertheless. The revolution was redefined as an authoritarian form of modernization in which the state would mobilize the human and material resources of an impoverished country to industrialize, modernize agriculture, and raise the cultural level of the people. This required, in particular, breaking the passive resistance of the peasantry in order to provide capital for what Preobrazhensky called 'primitive socialist accumulation'.

The policy of siphoning off the economic surplus produced in the agricultural sector was to form the basis for a period of Primitive Socialist Accumulation. Preobrazhensky argued that the struggle between the law of value and the law of planning was at the same time the struggle between the private sector of small-scale agricultural production and the state sector of large-scale industrial production. To avert the restoration of capitalism Preobrazhensky argued that the workers' state had to tilt the economic balance in favour of accumulation within the state sector. By rapid industrialization the state sector could be expanded which would both increase the numbers of the proletariat and enhance the ascendancy of the law of planning.

The shift from "War Communism" to the "New Economic Policy" (NEP) early in 1921 was motivated by four factors: First, the peasant uprisings all over the country; second, the mutiny in Kronstadt; third, the threatening famine; and fourth, the growing disorder in the ranks of the ruling Communist party.

The New Economic Policy consisted, in the main, of four reforms: First, the introduction of a land tax and the granting to peasants of permission for free trade within certain limits; second, the permitting of small-scale private industry; third, the granting of "concessions" to foreign industrial and mining firms; and fourth, permitting of small-scale trade in the cities.

Admitting that the economic reforms meant a retreat from the achieved level of integrated state economy and signified a substantial concession to capitalism, Lenin told his party that the retreat was necessitated by the slowed-up pace of the world revolution. He and his party had been mistaken, he said, and the notion that capitalist and socialist nations cannot exist at the same time was an error.

"Before the revolution, and even after it, we thought: Either revolution breaks out in the other countries, in the capitalistically more developed countries, immediately, or at least very quickly, or we must perish. . . .

"In actual fact, however, events did not proceed along as straight a line as we expected. In the other big capitalistically more developed countries the revolution has not broken out to this day. . . .

... It becomes clear from the very first glance that after the conclusion of peace, bad as it was, it proved impossible to call forth revolution in other capitalist countries, although we know that the signs of revolution were very considerable and numerous, much more considerable and numerous than we thought at the time."

The new thesis was the theory of "coexistence," which was to replace the preceding thesis of the impossibility of coexistence, and which prevailed later as an a principle of Soviet foreign policy. Cautiously and timidly, Lenin limited the era of coexistence to a short span of time: ". . . the socialist republic can exist — of course, not for a long time - in a capitalist surrounding." [V.I.Lenin, "Tezisy Doklada o Taktike RKP na III Kongresse Kommunisticheskogo Internatsionala, Pervonachalnyi Proekt" (Theses of the Report on the Tactics of the Russian Communist Party at the Third Congress of the Communist International, Initial Text) (June 13, 1921), Sochineniya (Works) (4th ed.; Moscow: Gosudarst- vennoe Izdatelstvo Politicheskoi Literatury (State Publishing House for Political Literature), 1941-58), vol. XXXII (1951), p. 429.]

Lenin inferred that what Russia needed was the legalization of some phases of capitalism: small trade, small industry, and "state capitalism"; state capitalism to Lenin meant big industry in capitalist hands under supervision of Soviet authorities.

". . . for our Russian Republic, we must take advantage of this brief respite in order to adapt our tactics to the zig-zag line of history. ... we went too far along the road of nationalising trade and industry, of stopping local turnover. Was this a mistake? Undoubtedly.

In this connection we did much that was simply wrong, and it would be a great crime not to see and realise that we did not keep within proper limits, that we did not know how to keep within proper limits. . . . We can permit a fair amount of free local turnover without destroying, but on the contrary strengthening, the political power of the proletariat." [Lenin, "The Tax in Kind," Report Delivered March 15, 1921 at the Tenth Congress of the RCP (B), Selected Works, vol. IX, p. 113. ]

The first of the new measures was the abolition of requisitioning of food products and the introduction instead of a tax in kind. Whereas the state formerly requisitioned all produce except that required for the peasants' personal needs, peasants hereafter would pay a fixed tax (paid in produce). The remainder of his product he could use himself or he could sell it to the state or on the private market. The most important paragraphs of the pertinent decree read :

"1. . . . requisitioning, as a means of state collection of foods supplies, raw material and fodder, is to be replaced by a tax in kind.

2. This tax must be less than what the peasant has given up to this time through requisitions. . . .

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8. All the reserves of food, raw material and fodder which remain with the peasants after the tax has been paid are at their full disposition and may be used by them for improving and strengthening their holdings, for increasing personal consumption and for exchange for products of factory and hand industry and of agriculture. Exchange is permitted within the limits of local economic turnover, both through cooperative organizations and through markets. "

"Exchange" meant selling on a free market; the term was used in order to avoid too frequent use of the provocative term "private trade." The admission of free small-scale trade in food products for the peasants in their own provinces was the most important of Lenin's retreats. Small trade was permitted in the cities, too, though only on a limited scale; small industry was also permitted. "". . . Let small industry expand to some extent, let state capitalism expand — the Soviet power need not fear that; it must look things straight in the face and call things by their proper names; but it must control this, determine its limits." [Lenin, "Speech on the Food Tax," Delivered April 9, 1921 at a Meeting of Secretaries and Responsible Representatives of Nuclei of the RCP (B) of Moscow City and the Moscow Gubernia, Selected Works, vol. IX, pp. 161, 162.]

The NEP industrial policy put initial emphasis on the development of small industries, whether in the form of private enterprise or in the form of industrial cooperatives, in the hope that they would most readily increase the flow of consumer goods. New enterprises were promised freedom from nationalization. Small enterprises which had been nationalized were leased to their former owners or industrial artels (producers' cooperatives) for fixed terms with the provision that rentals were to be paid in the form of a definite proportion of the output of the enterprise.

The least effective and the most controversial among the NEP measures were the "concessions" to foreign capitalists. To revive Russian industry Lenin wanted to attract foreign capital, as other backward countries were doing, by offering prospects of successful and secure invest- ment in Soviet industry; Lenin hoped that the industrial possibilities of the vast country would lure European and American capital. Lenin's party had often denounced abuses by concessionaires, for instance in the Middle East, Latin America, and China; to quiet these doubts, Lenin declared that where supreme power belonged to a Communist party, abuse would be impossible.

". . . What are concessions from the point of view of economic relationships? They are state capitalism. The Soviet government concludes an agreement with a capitalist. According to that agreement the latter is provided with a certain quantity of articles: raw materials, mines, hunting and fishing territories, minerals, or, as was the case in one of the last proposals for a concession, even a special factory (the proposal to grant the Swedish ball-bearing plant as a concession). The Socialist state grants the capitalist means of production that belong to it : factories, materials, mines ; the capitalist works in the capacity of an agent, as a leaseholder of Socialist means of production, obtains profit on his capital and delivers to the Socialist state part of his output.

Why do we need this? Because we immediately receive an increased quantity of products, and this we need because we ourselves are unable to manufacture them. . . . That is why we do not in the least close our eyes to the fact that, to a certain extent, free trade means the development of capitalism, and we say: This capitalism will be under the control, under the surveillance of the state. "

The first decree on concessions appeared on November 23, 1920, even before the other provisions of the NEP were promulgated. Within the party, opposition to concessions to foreign capitalists was considerable. Lenin himself referred to some of the numerous protests that had reached him. His comrades, he said, were saying : We expelled our own capitalists and now they want to call in the foreign capitalists.

After 4 months of negotiations, Lenin admitted that not a single concession had been granted.

"... It must be said that actually ... we have not succeeded in placing a single concession. There is a dispute among us about whether we should try to place concessions at all costs. . . . On February 1 of this year [1921], the Council of the People's Commissars adopted another decision on the question of concessions. The first point of this decision reads: "To approve in principle the granting of oil concessions in Grozny, Baku and other functioning oilfields, and to start negotiations, which shall be expedited."

"This question did not pass off without a certain amount of controversy. Some comrades thought that the granting of concessions in Grozny and Baku was wrong and was likely to rouse opposition among the workers. The majority of the C. C. [Central Committee], and I personally adopted the point of view that probably there was no real cause for these com- plaints. "

Only 14 concessions were granted in the years 1921-22. The number subsequently increased somewhat. In 1921/22 14 concession agreements were signed, in 1922/23 — 32, in 1923/24—34, in 1924/25—29, in 1925/26—26, in 1926/27—8, in 1927/28 — 4. Later almost no concession agreements were signed. On the whole the concessions policy was ineffective and was abrogated at the end of the NEP era.

The New Economic Policy signified a substantial retreat, but in the economic field only. No political retreat was envisaged; the Soviet government made it clear that no attempts to liberalize the system or to organize an opposition would be tolerated. A 90 percent private and capitalist economy under a 100 percent Communist government — a combination contrary to all precepts of Marxism — appeared absurd to many a Russian Communist. But Lenin was not willing to cede or share state power; there were to be no reforms except economic reforms.

The doubts which arose everywhere about this strange combination of communism and capitalism paralyzed the beneficial effects of the NEP. Foreign investors were mistrustful ; retail traders were ready at any moment to liquidate their small businesses and flee. In an attempt to counteract this lack of confidence, caution, and reluctance, Lenin publicly emphasized that the NEP would last for a long time:

". . . we have unanimously stated that we are carrying out this [new economic] policy in earnest and for a long time, but, of course, as has been correctly observed, not forever. It has become necessary because of our poverty, our ruin, and the terrible weakening of our big industry."

Lenin's words were hardly convincing in view of the general course his government was taking. The terroristic climate, the general uncertainty and fear, and the expectation of new twists and turns paralyzed the will of those whose support Lenin wanted to gain for the task of reviving the Russian economy. Everybody, inside the country and abroad, was doubtful.

The doubters proved to be right. Within a year a new wave of "anticapitalism" swept the Communist party, and now Lenin had to announce that the new course had reached its limits. ". . . "Enough! No more concessions!" If Messieurs the capitalists think that they can procrastinate, and that the longer they procrastinate the more concessions they will get, then we must say: "Enough! Tomorrow you will get nothing." . . . The retreat has come to an end, and in consequence of that the nature of our work has changed."

A week after this announcement, Lenin, explaining the new turn in his policies, pointed to the discord in the ranks of international communism caused by the Russian "retreat." "A retreat is a difficult matter, especially for revolutionaries who are accustomed to advance, especially when they have been accustomed to advance with enormous success for several years, especially if they are surrounded by revolutionaries in other countries who are yearning for the time when they can start the offensive. Seeing that we were retreating, several of them, in a 'disgraceful and childish manner, shed tears, as was the case at the last Enlarged Plenum of the Executive Committee of the Communist International. " [Lenin, "Political Report of the Central Committee to the Eleventh Congress of the R.C.P. (B.)" (March 27, 1922), Selected Works, vol. IX, p. 341. ]

While putting brakes on the NEP, Lenin did not, however, revert to wholesale requisitioning of grain and other products, nor to the abolition of free trade for peasants. These elements of the economic system remained in force. The economic system which, despite a multitude of changes and constant revamping, prevailed during the NEP period (1921-28) embraced: an industry controlled by and run by government agencies; a state monopoly of foreign trade, and what there remained of wholesale trade in the country; a certain amount of small private trade, which was, however, plagued by exorbitant taxation; an agriculture based on small private economy but obliged to pay taxes in kind; an extremely low standard of living for the peasantry and the workers.

NEP entailed the introduction of market-like monetary measures, particularly in the crucial domain of grain production. Its historic significance lay in the way that it signified an abrupt abandonment of aggressive grain requisitioning strategies (prodrazvyorstka) that had been introduced during the Civil War and formed the backbone of the "war communism" strategy. While control of the economy would remain within the remit of central state planning, NEP marked a tactical shift toward the denationalization of small- and medium-scale industry and toward a degree of private ownership--both of which had been severely attacked during the preceding three years. From that point onward peasants would be taxed in kind at quotas that were set substantially lower than in the war communism period, allowing them to dispose of their excess produce in a mixed economic environment with some market functions (for example, competition and profit). This new system also necessitated the relaxation of investment rules in the country and the moderate encouragement of private economic activity both in the countryside and the urban centers.

Lenin referred to NEP as "an economic Brest-Litovsk," a reference to the peace treaty that extricated Russia from World War I, the onerous terms of which were expected to be done away with promptly by world revolution. Employing market incentives, allowing private trade, and permitting private economic relations were abhorrent to orthodox Bolshevik ideology. Such a philosophical compromise could not have endured for long. By ending it, Stalin merely followed on what Lenin would have done in the same circumstances.